Reflecting on the Business Roundtable in August, Sayo Ayodele, Partner at Leader’s Quest, shares her thoughts on the importance of creating value for all stakeholders, as opposed to just shareholders and profit. Sayo’s key takeaways include deep listening, embracing complexity, courageous leadership, and a networked ecosystem.
At the end of August, the Business Roundtable, a business lobby group that represents some of the world’s most influential companies, put out a public statement declaring that the purpose of business is to create value for all stakeholders. This represents a significant departure from the past 50 years – during which shareholders and profit were the primary (if not only) concern for business. There is widespread skepticism about whether this announcement is just rhetoric. Are these companies truly intending to evolve their businesses to be of service to all stakeholders?
While this announcement is at this stage, just words on a sheet of paper, it speaks to a changing zeitgeist. Businesses feel a need to, at the very least, pay lip service to the fact that they are thoughtful about their role in society. This demand is coming from 1) consumers – who increasingly are putting their money towards brands and companies that represent their values; 2) investors – who are increasingly evaluating their investments on the basis of environmental, social and governance criteria; 3) from within businesses where employees are demanding more of their employers. Data shows that younger generations want to work in organisations that represent their values. Businesses also know that they are not isolated from some of the global challenges that we face. Some businesses recognise that issues like climate change represent a threat to their supply chain. A shifting political environment in response to social and economic challenges has also led businesses to preempt any regulatory action that might result from shifting political tides.
Whatever the rationale, I applaud the decision and the announcement. My personal experience of working with senior leaders of some of the world’s largest companies over the past decade is that the significant majority want to build more purposeful organisations. The question is often what that means and how their business can implement it. How does a company go about “serving all stakeholders” to use the language of the Business Roundtable?
In 2016, we at Leaders’ Quest in collaboration with a partner organisation called Meteos asked this question of the UK’s financial system in a project called BankingFutures. The central question of the project was how to build a healthier, more resilient, and inclusive financial sector. To do this, we recognised the need to create a multistakeholder group that brought diverse perspectives into the conversation. The group included leading bankers, investors, regulators and civil society for a multi-year conversation about the nature of the change required.
Here are some of my personal learnings:
Serving stakeholders starts with listening
Serving all stakeholders begins with including them as part of the conversation in a meaningful way. As part of the BankingFutures project, we made it a point to listen to all the stakeholders of the UK’s financial system. We heard from employees who shared their sense of what it meant to them to work in a sector that they believed really added value to society and could have an even greater impact. We spoke to investors who were exploring how to navigate the changing nature of risk. We spoke to regulators grappling with the question of how to encourage investment while safeguarding consumers. We listened to individuals that had been made homeless by the financial crisis. At the end of it, we came away better informed about the various perspectives and more equipped to make relevant and appropriate recommendations about how to build a healthier and more resilient financial sector.
Embracing complexity and navigating through dilemmas
For companies exploring how to become more purposeful, there are some simple and quick wins (such as paying and treating employees and suppliers fairly). But often the questions and solutions are much more nuanced. For example, we know from the evidence that we need to take urgent action on the environment and that business has a huge role to play in that. Who speaks on behalf of the environment and society? As part of becoming a purposeful organisation that is taking action on the environment, a business may decide to double down on its recycling policy or encourage its employees to cycle to work. This is noble and important. But all the evidence shows that businesses should be aligning any environmental action or policy with science-based targets – which are carbon emissions targets that are aligned with a 1.5-degree pathway. Failing this, a strategy can be important but not particularly meaningful. Getting clear on the facts about what it means to serve a variety of stakeholders requires ongoing conversations with those stakeholders and with experts. Being part of a dynamic network or coalition of organisations such as We Mean Business, who can help businesses understand what it means to, for example, make meaningful action on climate change is extremely important.
Recognise that purpose is a journey, not a destination
Just as business models need to evolve to reflect the changing demands of consumers, so purpose must evolve to reflect changing business models, and evolving social and environmental needs. Joining up with a network of experts can help businesses focus on where there is critical and meaningful action to take today and where there is time to ensure we are building a dynamic and thoughtful approach.
Bold action requires courageous leadership and systemic change
It’s not easy for leaders in today’s business sector to take action – public and governmental scrutiny is incredibly high. Getting investors and boards on side isn’t always easy. Bold action requires courageous leadership that is willing to be ambitious, listen, be open to feedback, and be willing to adapt as our societal needs evolve.
It’s also helpful to be part of a networked ecosystem of like-minded leaders or companies working towards a collective shift. A company trying to embed purpose in isolation is likely to find their journey challenging.
Companies, consumers, investors, employees, industry groups are all part of an entrenched system of business as usual. Companies therefore often have little incentive to make meaningful changes to their approach or business; there is a significant risk with little guarantee of reward. Coalitions that includes businesses, investors and consumers making collective progress can trigger a race to the top